Craig’s Diatribe on the USA and Global Economy (# 1)

June 6, 2008

This blog entry is to try and express my viewpoints on the current state of the USA Economy, my predictions for the future and how we are no longer a localized economy but now are part of a GLOBAL economy. It is part one of a series.

Economic models are nothing more than a theory of how things work… while those theories have been fairly accurate on the last 2 or 3, or even 4 decades our understanding of the way in which the USA economy (as well as the global economy), works is in need of revision.

The USA used to be the master of its own destiny… no more!!!

Where to begin?? This could be a complicated entry and I do not want you the reader (especially if you are a novice) to get lost…. So here I go….

Americans, for the most part, have lost their direction over the last 15 or 20 years…. I cannot and will not blame the politicians… although they should share some of the blame… but we as individuals, need to accept responsibility for where we are today (at least mostly). What do I mean by this?? Well we became a society that never foresaw that our spending (consumption) patters were too great. We felt wealthy and even entitled to an ever increasing and higher standard of living. We disregarded the warnings of our grandparents and great parents who lived through the “Great Depression” years.

We did not save! We used our equity on our homes for newer cars, the latest technologies, and what we determined to me our “God Given right” to a vacation and other rewards for working so hard. We failed to save and invest wisely and gambled on stocks and the future value of our homes to be our savior in the years ahead. We thought about the future in lose terms but never really took the risk too seriously. We always believed that our life style would never be reduced but would continue to rise. WELL … If you still believe that you are in for a great shock… as our quality of life and our life style is never going to be the same. We are no longer masters of our own destiny and must now participate in a global society…. And these facts, my friends (and foes) are the mere facts of life today, which we have not yet accepted.

HOW DID WE GET TOM THIS POINT???

That answer is very complicated…. But lets examine some basics:

1 Commodities: There are two types of Commodities. One that we basically get from the earth in raw form and then convert to materials we use in our daily life…. Oil, Coal, Water, Natural Gas, Metals etc…. then there are those the we grow and raise… food stuffs primarily… the most basic being things like corn, wheat and rice…. Basics in almost every countries diet.

Commodities cost money and energy to produce… when we start importing and exporting those commodities then we have a currency exchange…. One country’s money in exchange for another’s for the buying and selling of those commodities. These “prices get higher the more “value” we add to each commodity…. For instance…. Refining oil into lubricants or heating oil and even more personal into plastics and Synthetic fabrics like Polyester and rayon etc.

We add even more value when we change those plastics into use for appliances, electronics, automobiles and so on… combining commodities to make products that end up in homes and offices, and to a lesser extent in factories where they are used to make “end user” products

Simply we as the consumer are at the end of the “value added” chain of events and must pay the final price ….. This does not include the “disposal Price” when we have to get rid of our “old things”.

REMEMBER: Supply and Demand economics is real… but NOT as important in the United States Economy alone… meaning that the Supply and Demand pricing models are now based on World Wide Demand and not just what is demanded in the USA… we ARE a global society now.

The “global economy” comes into play when we realized that much greater profits could be had by using another countries labor to add the value. Clothing was one of the first things that was “outsourced” and the Amalgamated Clothing Workers of America: fought hard to keep their jobs from going overseas… but obviously they were no supported very well in their protests.

We then subjected ourselves to the mandates of the WTO (World trade Organization) and had to negotiate trade agreements with various countries to keep the balance of trade in some order. However by doing this we lost more control over our destiny then anyone would imagine even to this day. Simply we cannot protect our own companies or workers that function in the USA because it is now against international law that WE agreed to (OK… this blame goes to the Politicians).

One needs to look only at the stocks that did well the last 6 to 9 months and see that MOST of their profits came from overseas…. More on how this is possible later….

Our thirst for MORE PROFITS, and the false belief that what was good for Wall Street was good for America is seriously being challenged… but it is to late to unwind the situation we now find ourselves… George Sorros calls for a new paradigm… maybe that is where we are already and have now acknowledged it… or at least told the average American.

Now the pressure has been on the Federal Reserve and the US Government to make things better… but they really cannot, and we need to stop thinking they can. These institutions CAN however reduce the amount of FUTURE pain that the average American is feeling.

There is a concern that the pain is now gone from “Wall Street” to “Main Street” with the focus on BUSINESS… but most Americans are now feeing it on “MY STREET” something that is being ignored. Business seems to be what we are most interested in, and for that the average person will continue to bear the brunt of this economic condition we are in… because … if you read above… the CONSUMER is the one who is basically the END USER… WE pay the final price for this.

OK… enough of the basic economics lesson for toady…. Later I will write about where we are and the CURRENT economic Condition that ALL of us need to be aware of… not the HYPE that the TV and other media wants us to see and hear… but realities

After that I will write on what we can do for the FUTURE… how we can survive… not thrive… in the downturn that is here and will continue for some time…. Practice advice that IF I AM WRONG… will never hurt you but only make you better off in the future.

Oil Prices. The Dollar value in the world, an Energy and commodity prices will be discussed. I know people are looking at the stock market after what happened on Friday June 6…. And especially they are looking at OIL PRICES… and there is a lot of attempts to LAY BLAME…. And to say it is speculation… our congress has tried to find a “culprit” to blame… and I firmly believe it is not the “Speculators” it is really because we are in a “GLOBAL ECONOMY” that these prices are raising…. That is why I have decided to write this post… so the average person will understand What has happened, what is going on and Where we are going ….. it is very important to knowing what to do in the future and to see how we are not in control of our destiny as we have been in the past and how we are really a global society now … whether we like it or not… and there is no turning back!!!

Post note: I know that this blog has been used for my promotion of Africa Development…. I am still working on these as well… I have been silent for some time for a variety of reasons… but I have not stopped working on these projects

I have also decide that now that BOTH parties have selected their nomine for President of the United Staes… NEITHER of which can make our lives like they were…. that the time was right to discuss our economy .

Additionally I was going to discuss the Housing Crisis in America and the weakening dollar and what the Federal reserves actions have been….but I do what to do that later… but please remember that the Federal Reserve is in charge of MONETARY POLICY… meaning the banking and Interest rates and to control the growth of our economy . There is considerable discussion taking place as to the Bear Sterns intervention by the FED and if is was a way to intervene in the Financial markets…. which was NOT disctated by their mandate from Congress… they are to be independent politically… but they a have limited authority… CONGRESS and the Executive Branch of Government has the responsibility for FISCAL Policy.. that means raising or lowering taxes and the borrowing of money to finance the government operations.. they can help or hurt the economy of the USA in general by the amount of money and the number of :jobs” they create within government. Sometimes those policies may appear to have a socialistic view point… but that is a discussion for another time…. just remember to keep the FED (Federal Reserve) and the FEDERAL GOVERNMENT as two distinct entities that try to work together and yet should never be able to influence each other in keeping the economy stable… also more on interest rates and why Mortgages are so hard to get today in a later post.

For the accuracy of my predictions I invite you to read my other posts on the US Economy at

http://craigeisele.wordpress.com/2007/12/10/my-predictions-for-2008-for-the-us-economy/

and

http://craigeisele.wordpress.com/2007/12/25/more-2008-predictions-from-craig-eisele/